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Chapter 4: Q. 3 (page 103)

Why is a living wage considered a price floor? Does imposing a living wage have the same outcome as a

minimum wage?

Short Answer

Expert verified

Since a living wage is a suggested minimum wage, it acts like a price floor.

Step by step solution

01

Minimum wage:

Minimum wages have been defined as “the minimum amount of remuneration that an employer is required to pay wage earners for the work performed during a given period, which cannot be reduced by collective agreement or an individual contract”.

02

Step 2

Since a living wage is a suggested minimum wage, it acts like a price floor.

If the living wage is binding, it will cause an excess supply of labor at that wage rate.

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Most popular questions from this chapter

Table 4.6 shows the amount of savings and borrowing in a market for loans to purchase homes, measured in millions of dollars, at various interest rates. What is the equilibrium interest rate and quantity in the capital financial market? How can you tell? Now, imagine that because of a shift in the perceptions of foreign investors, the supply curve shifts so that there will be $10 million less supplied at every interest rate. Calculate the new equilibrium interest rate and quantity, and explain why the direction of the interest rate shift makes intuitive sense.

Interest rateQsQd
5%130170
6%135150
7%140140
8%145135
9%150125
10%155110

Table 4.6

In the financial market, what causes a movement along the demand curve? What causes a shift in the demand

Which of the following changes in the financial market will lead to a decline in interest rates:

a. a rise in demand

b. a fall in demand

c. a rise in supply

d. a fall in supply

How do economists define equilibrium in financial markets?

Predict how each of the following economic changes will affect the equilibrium price and quantity in the financial market for home loans. Sketch a demand and supply diagram to support your answers.

  1. The number of people at the most common ages for home-buying increases.
  2. People gain confidence that the economy is growing and that their jobs are secure.
  3. Banks that have made home loans find that a larger number of people than they expected are not repaying those loans.
  4. Because of a threat of a war, people become uncertain about their economic future.
  5. The overall level of saving in the economy diminishes.
  6. The federal government changes its bank regulations in a way that makes it cheaper and easier for banks to make home loans.
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